AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 748
X X X X Extracts X X X X
X X X X Extracts X X X X
....AO under Section 143(3) read with Section 144C of the Act is bad both in the eyes of law and on facts. 2. That having regard to the facts and circumstances of the case, Ld. AO has erred in making the disallowance of cost of goods sold and expenses aggregating to Rs. 1,69,10,832/- to the returned income of the appellant that too by disregarding clear directions of the Dispute Resolution Panel and therefore it is liable to be deleted. 3. That having regard to the facts and circumstances of the case, the Ld. AO has erred in law in making addition of Rs. 1,69,10,832/- ignoring the provisions of sections 37(1) of the Income Tax Act, 1961 as well as provisions of Article 7(2) and (3) of DTAA between India and Singapore and thus the disallowance/ addition being wholly erroneous on law and facts is liable to be deleted in toto. 4. That having regard to the facts and circumstances of the case, the findings arrived at by the Ld. AO is perverse and based on erroneous assumptions in as much as the Ld. AO failed to appreciate that the branch office is established and working since last many years as Branch Office in India, and nexus of the costs/ expenses being core p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rd to the facts and in law, the Ld. AO has erred in not following the directions of Hon'ble DRP and thereby violating the provisions of Section 144C (10) thereby rendering the assessment proceedings bad and invalid in law. 10. That the Appellant craves leave to add, amend, or alter any of the grounds of appeal." 3. We have heard the rival submissions and perused the materials available on record. The Assessee is a company incorporated in Singapore and resident of Singapore and part of the Planet One group. It was submitted that the Assessee is engaged in the business of providing hospitality guest service, software applications and solution and design services for individual hotels, international chain hotels and integrated resorts. The Assessee had established a branch office in India for looking after the sales and distribution business in India. The Assessee is a comprehensive hospitality technology solutions and service provider with an extensive portfolio of integrated products used by more than 5,000 hotels with over 8,000 installations in 32 countries. The Assessee provides a comprehensive suite of hospitality operations and management solutions consisting of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tices under Section 142(1) of the Act issued by the Learned AO calling for various details and documents were duly complied with by the Assessee by filing the requisite details. During the year, the branch office had received the debit memo from the Head Office and accounted the same for Rs. 1,69,10,832/- towards procurement of software products, software maintenance services and reimbursement of expenditure in connection with its operations in India. The Learned AO, without considering the fact that the expenditure is attributable to the business of the branch in India, issued a draft assessment order under Section 144C(1) of the Act on 24- 03-2024 by disallowing the following expenses:- a) Cost of goods sold - software product - Rs. 50,26,062 b) Cost of goods sold - software maintenance - Rs. 69,56,790 c) Call centre charges -Rs 34,73,868 d) Reimbursement of support charges -Rs. 14,18,621 e) Reimbursement of courier charges - Rs. 35,491 Total disallowance - Rs. 1,69,10,832 6. The nature of each of the aforesaid expenditure is as under:- Payment towards purchase of software - Rs 50,26,062/- The branc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dia. Therefore, the gross receipts in the hands of the branch office cannot be taxed without allowing the deduction of expenses in furtherance of the actual product. It was submitted that the branch office /PE in India is a separate / independent taxable entity and accordingly the activities of the Permanent Establishment are liable to be independently evaluated and ascertained in the light of the plain language in which Article 7 of the DTAA stands couched. It was submitted that the fact that PE is conceived to be an independent taxable entity cannot possibly be doubted or questioned. It was submitted that Article 7 para 2 of the India Singapore Treaty has envisaged the similar situation which reads as under:- "2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... paragraph is profitably reproduced below: "66. On an overall consideration of the above, we come to the firm conclusion that the submission of global income being determinative of the question which stood referred, is wholly unsustainable. The activities of a permanent establishment are liable to be independently evaluated and ascertained in the light of the plain language in which article 7 stands couched. The fact that a permanent establishment is conceived to be an independent taxable entity cannot possibly be doubted or questioned. The wealth of authority referred to hereinabove clearly negates the contention to the contrary and which was commended for our consideration by the appellants. Bearing in mind the well-established rule of source which applies and informs the underlying theory of taxation, we find ourselves unable to countenance the submission of the source State being deprived of tis right to tax a permanent establishment or that right being dependent upon the overall and global financials of an entity. The Division Bench in these appeals rightly doubted the correctness of taxation being dependent upon profits or income being earned at the "entity level". T....